SAP’s latest ERP suite, S/4HANA, offers energy companies an important opportunity to drive their digital transformation. But implementation is a complex undertaking. Managing risks and building consensus around change will be key to success.
There is a clear defensive logic in adopting SAP’s new enterprise resource planning suite, S/4HANA, in that the vendor will cease to support older versions of its ERP suite (ECC6 and earlier) by 2027. As a result, from a business continuity perspective, adoption is a no-brainer. But it’s much more than a technical upgrade. For many energy companies it will be a key enabler of its strategic digital transformation journey.
SAP’s latest ERP software, built on its in-memory “HANA” database, is designed to support the wider digital transformation journey through a number of features, including:
- Embedded analytics – providing real-time insights and a leaner systems environment.
- New user-interface, FIORI, which works across devices.
- Machine learning and AI capabilities.
- Robotic process automation to handle repetitive tasks.
- Cloud deployment options.
Framing the project in this way, as a forward-looking strategic step rather than just another technical upgrade, is not only the truth, but it will also make it easier to get the appropriate buy-in from business leadership. It will also enable the business to set better objectives that leverage the capabilities of the new platform.
It will also help set the right expectations for your business context; for example, the level of process re-engineering and hence the business effort involved will vary significantly between a greenfield implementation and a brownfield conversion.
Project implementation challenges
To benefit from S/4HANA, energy companies must deal with a host of sector-specific complexities when considering any migration.
For instance, a rise in merger & acquisition activity, prompted in large part by the energy transition, is presenting IT ‘carve out’/on-boarding challenges for divested/acquired divisions of companies. In addition, there is a need to onboard new renewables businesses onto a common ERP platform. In short, migrating to S/4HANA is a significant investment.
Based on our experiences of acting as independent and trusted advisers to energy companies undergoing the transition, Baringa’s SAP experts offer their top considerations for any CIO or manager tasked with leading such a programme.
Future-proof the design
The design for the S/4HANA implementation should future proof IT carve-outs and rollouts from forthcoming M&A activity.
One Oil and Gas operator planned to do this by creating an IT M&A toolkit consisting of a ‘productized’ version of the IT onboarding procedures for a new asset with configuration templates, data extraction, cleansing and loading programs, automated regression test packages, user training modules and cutover plans.
Similarly, using SAP Central Finance (CFIN) as a system for centralized finance processes and compliance reporting helps integrate new assets to meet reporting requirements while gaining time to get the rest of the processes onto S/4HANA.
Choose the right SI Partner
Selecting the right system implementation (SI) provider is crucial – a task made harder by the growing demand for skilled SAP resources given SAP’s 2027 cut-off.
In addition to the generic selection criteria for such providers, energy companies should consider the following:
- Experience in S/4HANA conversions within the industry ensures that the SI understands the nuances involved in every aspect of the project, from consensus-building through to developing specific training materials.
- Ensure any proprietary industry reference implementation models are appropriate for your context, and whether they align with SAP’s own best practice ‘Model Company’.
- Establish whether the SI has the specialized tools or services to support a hybrid implementation method, should that be the approach proposed.
- Validate niche skills such as “Joint Venture Accounting” and “Production & Revenue Accounting” for upstream, and SAP IS-Oil solutions like “Trader’s and Scheduler’s Workbench” for downstream.
- Establish how the SI will follow recommended standards such as the usage of SAP’s “Business Technology Platform” and methodologies like ‘Keeping the core clean’. Understand how the SI partner intends to manage the need for customisation that result from deviation to the pre-configured processes, and what skills are available in the team to achieve this.
- Ensure the SI partner is fully aligned with the objectives of the implementation project, and how it fits into the overall digital strategy.
Green, brown or hybrid?
Energy companies’ existing SAP systems are typically heavily customized.
A greenfield approach offers the flexibility to re-engineer the process model and optimize the use of updated industry standards and reference models, but is costlier and requires much more involvement from the business compared to a brownfield option, which aims to preserve the existing process model and customisation but without any process re-engineering.
Choosing the right option will be a function of a business’s strategic priorities. Capabilities like Near Zero Downtime, selective data migration and selective process re-engineering are offered by several SI partners, often in partnership with specialist data migration experts.
A hybrid brownfield approach is a great option for companies wanting to preserve their investments and create a foundation to selectively innovate at a slower pace.
Private or public cloud?
With multiple hosting options available, in addition to the traditional on-premise setup, and all the detailed information from SAP in this regard, it can be quite confusing to decide which deployment model to choose.
To begin with, companies must decide whether to deploy SaaS via private or public cloud.
The application stack of the private cloud is similar to an on-premise/any-premise version. For most energy companies, the processes to be configured will require the oil & gas upstream and downstream industry specific solutions from SAP (IS-Oil). Industry specific functions for upstream are available on both cloud options while those for downstream are still available only in the private cloud and on-prem options.
The public cloud model requires a greenfield method of implementation and works on the fit-to-standard methodology with limited options for customisation. This option may suit agile organisations. Also, a plan should be made to accommodate and test for SAP’s regular updates once the system is live. It is useful to identify where SAP’s standard content might deviate from the specific requirements for the industry for e.g.: chart of accounts, time writing, delegation of authority, financial controls etc.
The private cloud deployment can be done using any of the implementation methods and allows more flexibility for customisation. However, due to SAP’s cloud-first strategy, the latest innovations can be slow to filter through. Even though this allows for customisation, the latest development guidelines should be followed to keep the ‘core clean’.
The on-premise/any-premise version can be hosted on-premise or on the cloud on an infrastructure-as-a-service basis and provides the most flexible customisation options, although it also comes with higher costs to maintain and modify. This option is also the most detached from SAP’s cloud-first strategy, and hence the last to receive the latest innovations released by SAP.
Manage the change
In general, change management efforts will be higher for a greenfield due to the process re-engineering and potential changes to the operating model.
A brownfield conversion process is also non-trivial, and shouldn’t be characterised as an upgrade. Under appreciating the need for training, for instance, can lead to poor adoption and a dissatisfied business who will be left with a sense of ‘lost functionality’.
To get all levels of users and the leadership fully committed to the project, it is helpful to define change leaders and champions covering all levels and departments, and to keep repeating the objectives and the value that will be delivered.
Many energy companies will have in-house SAP teams, and involving them early in the project creates a critical mass for dissemination of knowledge and will aid a smooth transition. Keeping the team abreast with the latest S/4HANA technology also helps to reduce unwanted attrition during the critical time of transformation. One of the major oil and gas companies is using exactly these techniques to prepare their own team for the S/4HANA transformation programme.
Programme control and ‘Client Owned’ activities
Typically, an S/4HANA implementation project will involve additional vendors and it may be expedient to make the main SI partner responsible for managing the others. Certain levels of control should be kept within the company to avoid the SI partner being a single point of failure.
Some companies introduce specific control roles to maintain critical activities in their responsibility over the SI partner. The company’s own programme-management should create a water-tight overall plan and a clear RACI with all partners involved so that no key task or responsibility falls through the cracks.
In addition, the company should be mindful of the activities that are typically neglected by SI vendors – for example change management, data collection and business cutover.
In summary, while there are still some years before the cut-off, earlier adopters of the S/4HANA programme are most likely to realise the biggest strategic gains.
Energy companies should start thinking now and plan the S/4HANA programme in conjunction with their overall business strategy and digital transformation strategy.
For more information on the content in this article and Baringa's services contact Sahir Abdul, expert in digital transformation, or Veronika Bratel, expert in enterprise resource planning.
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